Good morning. It is a great honour for Hong Kong to host this Regional Pension Funds and Social Security Systems Summit for industry experts to pool together their ideas and insights about a very current and important topic of this century. I am truly honoured to be invited to address such a distinguished congress. The wide spectrum of expertise of today’s speakers and audience aptly reflects the multi-faceted nature of pension funds and social security systems.

Some of you may be aware that, not too long ago, the Hong Kong community had an extensive discussion on how our retirement protection system, including the social security system and our retirement saving schemes, could be improved. A six-month public engagement exercise was launched in December 2015 by the Commission on Poverty, which at thattime was chaired by my predecessor and now the Chief Executive of our Government, Mrs Carrie Lam. What you may not be aware of is that that was the very first major public discussion on retirement protection initiated by the Government since the establishment of the Hong Kong Special Administrative Region in 1997. It demonstrated our clear recognition of the imminent challenges brought about by the rapidly ageing population and our commitment to providing better support for the citizens in their golden twilight years.

Adopting the World Bank's multi-pillar approach, Hong Kong's retirement protection system consists of four pillars - namely a multi-tiered social security system as Pillar Zero, the Mandatory Provident Fund (MPF) and other occupation-based retirement savings schemes as Pillar Two, voluntary savings as Pillar Three, as well as public services, family support and personal assets as Pillar Four. The design is underpinned by the principles of sharing the responsibility of retirement protection amongst individuals and families, employers and the Government, as well as addressing the varying needs of elderly persons through multiple channels.

Taking into account the public views expressed during the six-month public engagement exercise and the balance of interests across different generations, we have concluded that the existing multi-pillar retirement protection system should be maintained. This decision is primarily based on four key considerations.

The first consideration is affordability. This has to be seen in the wider context of Hong Kong's demographic reality. Our population is rapidly ageing. As our baby boom generation is retiring, the workforce is expected to shrink from 2023 onwards. Elderly persons aged 65 or above make up about 17 per cent of our population. Some 20 years later, one in every three Hong Kong people will be an elderly person. Our population is also living longer. The "old-old", i.e. persons aged 75 or above, are the fastest growing demographic group. Three out of five persons turning 65 today will live to the age of 85 or beyond, and two of them to at least 90. While we take pride in the longer life expectancy in Hong Kong, many of us may experience a retirement life that extends to two or even three decades. It is therefore of paramount importance that we are able to afford the potential expenses of retirement protection.

This brings us to the next consideration: financial sustainability. As policymakers, we have a duty to ensure that all measures, in particular those meant to improve livelihood, are financially sustainable in the long run. The Government is currently spending around HK$75 billion per year on various elderly benefits and services. These include the heavily subsidised hospital care, the non-means-tested Old Age Allowance, the HK$2 transport concession scheme and the health care voucher scheme for elderly people to receive care from the private sector. Earlier estimates indicate that a universal pension at a monthly payment of around HK$3,300 would incur an additional aggregate cost up to HK$2,400 billion over the next 50 years, or HK$48 billion per year on average. This represents a staggering 60 per cent increase in elderly spending. Against the background of shrinking workforce and bearing in mind that raising taxes may reduce Hong Kong’s appeal and competitiveness as a place for investment, we should be cautious not to take on a bill that will deplete our fiscal reserves in the long run.

The third consideration is equity. All along, while channeling public resources to helping the needy, it is our philosophy to encourage self-reliance. This self-reliant spirit is cherished by all Hong Kong people. Given that public resources are scarce, we have to ask ourselves which is the more equitable way to help those in need: a universal shotgun approach? Or a targeted rifle approach? Some may say that an across-the-board protection is a basic right.

However, recognising the right to retirement protection does not mean that we must provide the protection by giving out the same amount of cash to everyone regardless of their financial status.

As I have pointed out, our retirement protection is underpinned by different pillars. Effective protection can indeed take different forms. For cash payment, public resources should be targeted at vulnerable older people and seek to narrow the gap between the rich and the poor. In addition, to look at equity from an inter-generation angle, we would not want to leave our children and grandchildren with a pay-as-you-go universal pension system that, as the experiences of other developed economies have shown, can snowball into a burden which they may not be able to cope with.

The fourth consideration is comprehensive protection. We all probably agree that retirement protection encompasses not just financial assistance. Depending on their age as well as their physical, family and financial conditions, elderly persons have different needs at different life stages, such as medical services, community care and financial subsidy. The Government is giving a significant portion of its resources to meet the needs of the elderly. As public resources are not limitless, the policy and measures for improving people’s livelihood are not merely a matter of supply and demand. They also involve resource allocation according to the three principles that I mentioned earlier: affordability, financial sustainability and equity.

By saying that the existing multi-pillar retirement protection system should be maintained, we are not just suggesting the status quo. There is simply no room for complacency. Earlier this year, we have announced a package of measures to improve each of the existing pillars, with a view to enhancing the adequacy and coverage of retirement protection while maintaining the affordability and financial sustainability of the system. To name but a few, we will improve the multi-tiered social security pillar by enhancing the Old Age Living Allowance (OALA). The Allowance currently benefits more than 460 000 elderly persons and is the most popular social security programme for our senior citizens.

The asset limit of the OALA has been relaxed starting May this year. In addition, as announced in the Chief Executive's inaugural Policy Address in October, a Higher Old Age Living Allowance will be implemented in mid-2018 to provide a monthly allowance of $3,435 to eligible elders. After the enhancement, the social security pillar is expected to cover 74 per cent of our elderly population.

We have also put in place measures to strengthen the public services pillar to better meet the health care needs of elderly persons. An example is lowering the eligible age for the elderly health care voucher scheme from 70 to 65 and extending the medical waivers for older and more needy OALA recipients in receiving medical services from public hospitals and clinics. Our commitment is demonstrated by the resources that we are giving to these and many other initiatives. In the coming ten years, the Government will be devoting an additional average recurrent expenditure of over HK$9 billion per year.

As for the MPF Scheme, we are working very hard with stakeholders to devise a way to increase scheme members’ overall retirement savings and maximise the protection offered to them. This includes driving administrative fees down by launching the "Default Investment Strategy" and eMPF. Besides, the abolition of the arrangement for "offsetting" severance payment and long service payment with MPF contributions will top the Government's policy agenda. We will put forward a proposal that takes into account the interests of both the labour sector and the business sector in a not-too-distant future to make MPF a more effective and robust protection for employees.

We have not lost sight of those old people who own some savings but are living a frugal life in the fear that the savings may not be enough to sustain the retirement years. To address their fears and anxieties, we are considering a larger issuance of the very popular Silver Bonds with longer maturity period for our elderly population. We also encourage the financial sector to develop more retirement-related investment products. In this connection, we are delighted to learn that the Hong Kong Mortgage Corporation is planning to launch a life annuity scheme in mid-2018 to help the elderly convert their one-off assets into a stable monthly retirement income.

We will keep in view the implementation of these measures as well as the changing needs of elderly people. But efforts on the part of the Government alone will never be enough. We encourage cross-sector and cross-profession collaboration as well as private-public partnership to make better use of our resources and provide more comprehensive care for the elderly. This Summit comes at a very timely moment. The two-day conference will bring together policymakers, regulators, key industry players and company leaders of various disciplines to explore viable strategies to ensure the sustainability and affordability of pension and retirement income solutions.

Before closing, I would like to extend my sincere gratitude to Asia Pacific Investors Cooperation (APIC), and APEC Business Advisory Council (ABAC)/Asia-Pacific Financial Forum (APFF) for staging this meaningful event in Hong Kong. I am sure that many insightful and innovative ideas will transpire at the various plenary panel sessions.

On this note, may I wish the Summit every success and all of you a very fruitful exchange and enjoyable stay in Hong Kong. Thank you.

Published on: 2017-12-05

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